Wednesday, September 29, 2010

Foreclosure Madness

by digby

This has been making the rounds all day and it's just simply horrifying:

Given that the IMF and others believe a large part of the “structural unemployment” in our country is related to the struggling housing market and underwater and barely-hanging on homeowners, what is to be done? One option is to allow for options like lien-stripping in bankruptcy courts, reseting mortgages by zip code, etc. Another option is for courts to accelerate foreclosures by ignoring due process, proper documentation and legal process in order to kick people out of their homes and preserve the value of senior tranches of RMBS while giving mortgage servicers a nice kickback.

What option do you think our country is taking?

We should all be very concerned about the foreclosure situation in Florida. If you are a homeowner or potential homeowner, you should find it offensive that people’s property rights are being violated in such a flagrant way. If you are an investor, either as “bond vigilante” or someone with a generic 401(k), you should be worried that servicers have gone rogue and the incentive structure to maximize value instead of fees associated with foreclosures has broken down.

And if you care about basic Western liberalism–the classical kind, with a Lockean understanding of freedom to own property along with freedoms of speech and religion– you should be pissed off. This is a clear-cut instance of the rich and powerful decimating other people’s property rights, rights that are supposed to protect the weak from the strong, in order to preserve their wealth and autonomy. Unless you think property rights are mere placeholders for whatever the financial sector demands are, this should be resisted. This should be viewed as a problem an order of magnitude larger than Kelo v. City of New London.

The short problem is that banks are foreclosing without showing clear ownership of the property. In addition, “foreclosure mills” are processing 100,000s of foreclosures a month without doing any of the actual due diligence or legal legwork required for the state to justify the taking of property and putting people on the street. Even worse, many are faking documentation and committing other fraud in the process. The government is allowing this to happen both by not having courts block it from going forward, but also through purchasing the services of these mills. As Barney Frank noted: “Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes?”

Why indeed?

This is a huge story that's been closely reported for some time on the econ blogs but is just now rising to the surface. My friend Jon wrote in with this observation:

" Alan Grayson’s office provided a particularly troubling example, that of a counterfeited court summons. It’s bad enough that servicers and foreclosure mills are making up securitization-related paperwork out of whole cloth, but now court documents to seize someone’s home? This is lawlessness. "

Yves Smith is right. This is absolute, balls-out lawlessness. Read all her posts on this. They've set up special courts that are run and controlled by the banks, where people being thrown out of their homes are not even allowed to present their evidence to a judge. The judge just rubber stamps the foreclosures and won't even hear the cases. Complete, blatant lawlessness of the first order.

Maybe Daniel Webster can perform an exorcism on the houses. I'm guessing that's the best we can hope for from the government at this point.